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Xstrata leads FTSE rebound as investors back Glencore merger

Xstrata leads FTSE rebound as investors back Glencore merger

(16.30 update) Shareholders in mining company Xstrata (XTA.L) have voted in favour of a proposed merger with commodities trader Glencore, prompting share price gains at the two companies and helping lift the FTSE 100 into positive territory.

Though giving their approval to a long-contended merger between the two companies, investors snubbed a controversial executive pay plan.

Shares in Xstrata topped the FTSE 100, up 3.7% to 991p. Glencore shares were 2% higher to 333p. ‘We recommend buying shares of both companies now,’ said analysts at Jefferies in a research note in response to the news.

‘We expect the merged company to be intensely focused on maximising returns on capital employed, with a uniquely strong bias to returning capital to shareholders rather than investing in large, capital intensive projects,’ they said.

The merger still needs approval from regulators in the European Union, China and South Africa.

The FTSE 100, meanwhile, shook off earlier losses to make small gains, rising to 5,745.

European markets were also up, while the euro was flat at $1.281, shrugging off Moody’s downgrade of France this morning (see report below).

US shares were slightly lower as investors focused on Hewlett Packard’s revelation that it would take an $8.8 billion (£5.5 billion) impairment charge, linked to ‘serious accounting improprieties’ by Autonomy, which occurred prior to HP’s acquisition of the firm.

HP has consequently asked US and UK regulators to investigate alleged misrepresentations of Autonomy’s financial position before HP bought the UK software company last year, according to reports.

The oil price fell back after yesterday’s sharp rise amid news reports that a ceasefire deal was to be announced in the Gaza conflict. Brent crude oil futures dropped by 1.4% to $110 per barrel.

Shares and euro slip as Moody's downgrades France

Markets slumped as credit ratings agency Moody’s downgraded France overnight from AAA to Aa1, with a negative outlook.

The group cited concerns about the country’s ‘deteriorating growth prospects’ and its lack of access to a national central bank for financing its debt in the event of market disruption. Moody’s also questioned the country’s growth forecast of 0.8% for the next year and 2014.

Standard & Poor’s downgraded the country earlier this year and ratings agency Fitch has also placed the country on a negative outlook.

Following the move the yield on 10-year French bonds inched up 2 basis points from 2.089% to 2.107% and the euro weakened 0.09% to $1.28 against the dollar.

European stock markets started Tuesday trade on the back foot as Germany’s DAX index slipped 0.07% to 7,119; France's CAC 40 index fell 0.4% to 3,426; and the FTSEurofirst 300 index of top European shares gave up 0.17% to 1,089.

In Britain the FTSE 100 gave up 0.25%, or 15 points, to 5,723 and the Mid-250 index ticked up 0.11%, or 14 points, to 11,758.

InterContinental Hotels (IHG.L) rose to the top of the FTSE 100 index, taking on 34p, or 2.2%, to £16.25 as analysts at Barclays increased their rating on the stock from ‘equal weight’ to ‘overweight’ and increased their target price on the stock from £17.30 to £18.25.

Budget airline Easyjet (EZY.L) announced a 28% jump in full-year profit as late summer bookings and growth in the number of business travellers helped push sales ahead. The air carrier announced it would double its dividend from 10.5p paid last year, to 21.5p this year and shares added 28.5p, or 4.4%, to 681p in early Tuesday trade.

Emergency repairs group Homeserve (HSV.L) took on 3.5p, or 1.6%, to 226p as it reported 8% growth in year-on-year revenues in the six months to the end of September, boosted by international growth.

Bank HSBC (HSBA.L) shed 6.4p, or 1%, to 612p to sink to the bottom of the FTSE 100 as it mulled selling its $9.5 billion (£6 billion) stake in Ping An Insurance, the second biggest insurer in China by assets, to improve its balance sheet. 

Xstrata (XTA.L) shareholders are today expected to give the go ahead for a $31 billion takeover by commodity trader Glencore (GLEN.L). The deal would be the biggest merger in the sector and Xstrata shares ticked up 1.9p, or 0.2%, to 959p, whilst Glencore shares were flat, up 0.5p, or 0.15%, to 327p.

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